ACIT., CIRCLE-5(1), HYDERABAD vs. OCEAN SPARKLE LIMITED, HYDERABAD

On the other hand, the learned AR of the assessee has submitted that the issue involved in the appeal filed by the Page 3 of 31 Department is covered by the decisions of this Tribunal in assessee’s own case for the A.Y 2000-01 to 2016-17. Thus, he has supported the impugned order of the learned CIT (A) and submitted that the issue is squarely covered by the earlier decisions of this Tribunal.

In the rejoinder, the learned DR has submitted that the Department has challenged the orders of the Tribunal before the Hon'ble jurisdictional High Court and the appeals for the A.Ys 2000-01, 2006-07 and 2008-09 are pending before the Hon'ble jurisdictional High Court.

We have considered the rival submissions as well as relevant material available on record. The assessee company is engaged in the business of operating ships and port services and filed the return of income for the year under consideration on 27/11/2017 declaring total income of Rs.13,73,10,110/- after claiming deduction u/s 80IA of Rs.1,82,07,416/-. The assessee claimed that the income was derived from maintaining and operating port infrastructure and hence eligible for 100% deduction u/s 80IA of the I.T. Act, 1961. During the course of assessement proceedings, the Assessing Officer issued show cause notice and asked the assessee to furnish the necessary and sufficient details of the basis for claim of deduction u/s 80IA of the Act and also show cause as to why the claim of deduction u/s 80IA should not be disallowed as it was disallowed in the earlier Page 4 of 31 A.Ys. In response to the show cause notice, the assessee filed the reply dated 02/12/2019 reproduced by the Assessing Officer in para 3.2 as under:

Thus, the assessee has reiterated its claim on the strength of the orders of this Tribunal for the A.Y 2001-02. It is also explained by the assessee that, the services rendered by the assessee by virtue of agreement with various port developers constitutes operating and maintenance of ports. The developers also furnished the confirmation letters to the effect that, the Page 5 of 31 various services being rendered by the assessee company are in the nature of operation and maintenance of ports. There is no dispute that the assessee is rendering the service of operating and maintenance of ports under the agreement with the developers and in some cases with the sub-contractors and not under the agreement with the Central Govt./State Govt./local body or any other statutory bodies, then the question arises as to whether the services rendered by the assessee under the agreement with developer as well as with sub-contractor of the developer would satisfy the conditions for claiming the deduction u/s 80IA of the I.T. Act, 1961. For ready reference, the provisions of section 80IA(4) of the Act are reproduced as under: “80IA (1).Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent. of profits and gains derived from such business for ten consecutive assessment years. (2)…… (3.)….. (4) This section applies to- (i)any enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining] any infrastructure facility which fulfills all the following conditions, namely:- (a)it is owned by a company registered in Indian or by a consortium of such companies [or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act] (b)[ it has entered into an agreement with the Central Government or a State Government or a local authority or any Page 6 of 31 other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility; (c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995: Provided that where an infrastructure facility is transferred on or after the 1st day of April, 1999 by an enterprise which developed such infrastructure facility (hereafter referred to in this section as the transferrer enterprise) to another enterprise (hereafter in this section referred to as the transferee enterprise) for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central Government, State Government, local authority or statutory body, the provisions of this section shall apply to the transferee enterprise as if it were the enterprise to which this clause applies and the deduction from profits and gains would be available to such transferee enterprise for the unexpired period during which the transferor enterprise would have been entitled to the deduction, if the transfer had not taken place. Provided further that nothing contained in this section shall apply to any enterprise which starts the development or operation and maintenance of the infrastructure facility on or after the 1st day of April, 2017. Explanation: for the purpose of this clause, “infrastructure facility means- a) road including toll road, a bridge or a rail system;( b) a highway project including housing or other activities being an integral part of the highway project; (c) a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system; (d) a port, airport, inland waterway][, inland port or navigational channel in the sea x .x. .x. .x. .x. .x. .x. x x.x.x.x.x.x.x.x.x.x.x.xx.”

Thus, sub section (4)(i) of section 80IA prescribes the condition for the eligible assessee to claim deduction u/s 80IA(1) that an enterprise is carrying on business of developing or operating and maintaining or developing, operating and maintaining any infrastructure facility and such enterprise is owned by a company registered in India or by a consortium of such company or by an authority or a Board or a Corporation or any other body established/constituted under the Central or State Acts has entered into an agreement with the Central Govt/State Govt./local authorities or any other statutory body. The term infrastructure facility has been defined in Explanation to section 80IA(4) and as per clause (d) of the Explanation, this includes a Port/Airport/Inland Waterway, Inland Port or navigational channels in sea as part of infrastructure facility. Thus, it is clear from the plain reading of section 80IA(4)(i) of the Act that for claiming deduction u/s 80IA, an enterprise owned by a company or consortium of companies etc., shall be carrying on the business of either developing or operating and maintaining any infrastructural facility (Port) or developing, operating and maintaining any infrastructure facility (Port). Thus, such an enterprise shall either carrying only one business of developing or operating and maintaining the Port or carrying both the activities of developing as well as operating and maintaining the Port would be eligible for deduction u/s 80IA of the Act, if the said enterprises has entered into an agreement with Central/State Govts. or local authorities or any other statutory body for Page 8 of 31 developing or operating and maintaining or both developing as well as operating and maintaining a new infrastructure facility (Port). The condition as per sub-clause (b) of 80IA(4)(1)(i) is a substantial and mandatory condition for claiming the deduction u/s 80IA of the I.T. Act, 1961. The first proviso to section 80IA(4) makes it clear that, in case of any infrastructure facility is transferred on or after 1/4/1999 by an enterprise which developed such infrastructural facility to another enterprise for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central/State Govts. or local authorities or any other statutory bodies, as the case may be, the provisions of this section shall apply to the transferee enterprise, as if it were the enterprise to which clause (i) applies and the transferee enterprise would be eligible for deduction for the unexpired period during which the transferor enterprise would be entitled to the deduction if the transfer had not taken place. Therefore, only in case of transfer of infrastructure facility developed by one enterprise to another enterprise for the purpose of operating and maintaining the infrastructure facility (Port) on its behalf in accordance with the agreement with the Govt., the deduction is available to the transferee enterprise. The Assessing Officer has given relevant facts on this aspect in para 4.9 to 4.11 as under:

The facts recorded by the Assessing Officer have not been disputed by the assessee so far as the agreement entered into by the assessee with M/s. M/s. Cocanada Port Company Pvt. Ltd. dated 16.5.2000, whereas the Govt. of Andhra Pradesh has entered into an agreement with International Sea Port India (P) Ltd for the development and operation of Cocanada Port Company Pvt. Ltd. It is manifest from these facts that the assessee is not even a sub- contractor but has been providing these services under the agreement with the sub-contractor or the contractor Page 10 of 31 who had entered into an agreement with the Govt. of A.P. Though the condition as per sub clause (b) of clause (i) of sub-section (4) is not satisfied being an enterprise entered into an agreement with Central/State Govts. or local authority or other statutory body, however, it is to be seen whether these agreements between the International Sea Port India (P) Ltd and Kakinada Deep Water Port are in the nature of transfer of the infrastructure facility and then again transfer of the said facility in favour of the assessee. The assessee has nowhere claimed that it is a case of transfer of infrastructure facility under these agreements. Therefore, as per provisions of section 80IA of the I.T. Act, 1961, any enterprise, other than the enterprise which has entered into an agreement with the Govt. is not eligible for deduction u/s 80IA except in case of transfer of infrastructure facility already developed by the first enterprise and entered into an agreement with the Govt. or statutory body etc. The Assessing Officer further recorded the facts and his findings in para 4.1 to 11 as under:

Page 11 of 31 Page 12 of 31 Page 13 of 31 Page 14 of 31 Page 15 of 31 Page 16 of 31 Page 17 of 31 Page 18 of 31 Page 19 of 31 Page 20 of 31 Page 21 of 31 Page 22 of 31 Thus, the Assessing Officer has given the finding that the case of the assessee does not fall in the ambit of proviso to section 80IA(4) and consequently the assessee is not entitled for deduction u/s 80IA of the I.T. Act, 1961.

It is manifest from the above order that the learned CIT (A) has allowed the deduction u/s 80IA by following the orders of this Tribunal in assessee’s own case. This Tribunal in assessee’s own case for the A.Ys 2005-06 to 2007-08 vide order dated 25/01/2012 in 1457/Hyd/2010, 899/Hyd/2010 and 1336/Hyd/2010 has held in paras 7 to 14 as under: “7. We have heard both the parties and perused the material available on record. We have also gone through the earlier order of this Tribunal in the assessee's own case cited supra. It was held by the Tribunal in that order that:

With these observations, the Court has clarified that the claim of the assessee even for O & M should be entered into with specified authorities, regardless of the proviso to section 80IA.

With regard to the deduction claimed in respect of Dhej Port, the Tribunal in its order dated 25.11.2005 had held the case fell outside the purview of the provisions of section 80IA (4) since O & M of the infrastructure facility had commenced prior to 1.4.1999. However, the Tribunal allowed the claim of the assessee to be considered u/s 33AC and set aside the matter to the file of assessing officer. Before us the learned AR submitted that the claim for the present year is based on a new contract, since it has been entered after 1.4.1999, which entitles the assessee to be considered under the proviso as had been done for other two ports considered by the Tribunal. If the assessee entered into new agreement in respect of Dhej port and on par with the other two ports, the claim of the assessee u/s. 80IA instead of u/s. 33AC has to be allowed as held by the Tribunal on earlier occasion.

Further the deduction u/s. 801A already granted to the assessee for the earlier assessment years as decided by the Tribunal by the order cited above, being so, we are not in a position to take any contrary view in this matter in view of the order of the Tribunal in the case of Micro Instruments Co. Ltd. Vs. ITO (2008) 12 DTR (Chd) 501 wherein it was held that the assessee's claim for deduction u/s, 8OIB has been allowed in the initial assessment year and also thereafter, claim for such deduction cannot be denied for subsequent years without any justification. The relevant observations of this Tribunal are extracted hereunder: "The assessee initially claimed deduction under s. 801B for the impugned unit in the asst. yr. 2001-02 and the same was allowed. In this assessment year, i.e., 2003-04 the claim of the assessee was in continuation of the claims made in the earlier assessment years for the impugned assessment year falls within the number of assessment years as specified in the section in which the claim is eligible. It is also a pertinent fact position that the claim allowed to the assessee in the initial assessment year of 2001-02 and thereafter in the asst. yr. 2002-03has not been withdrawn. There is no contravention from the Revenue either at the stage of the proceedings before the lower authorities or even before the Tribunal. Thus, factually speaking the claim of the assessee for deduction under s. 801B Stands admitte4d in the initial assessment year and also thereafter up to the assessment year prior to the year under consideration. On the factual matrix, there is no justification for the AO to deny the claim of the assessee Page 27 of 31 for deduction under s. 80IB. The implication of the earlier assessment made for the initial assessment year under s. 143(3) is that the assessee has fulfilled the conditions prescribed in the said section. Thereafter, it is not open for the AO to re-examine the issue all over again and come to a different conclusion in a subsequent year without justifying such departure. In the assessment order, there is no discussion by the assessing officer on this aspect in spite of the fact that the assessee had taken a specific position based on the relief allowed in the past. Further, the claim accepted by the AO in the asst. yr. 2001-02 and thereafter in 2002-03 has not been disturbed. Clearly, in a such a situation, the onus which was on the Revenue has not been discharged. Ln so far as the justification for the claims of exemption/tax reliefs are concerned the onus is on the assessee to establish and justify the claims. So, however, in a situation like the present situation, the AO ought to have justified this departure from the earlier accepted position whereby similar claim has been accepted in the past. It is in the background the onus was on the AO to justify the denial of deduction under s. 80IB in view of the past history. Therefore, in this background there is no justification to uphold the stand of the IT authorities to deny the claim of the assessee for deduction under s. 80IB in relation to the profits and gains. Saurashtra Cement & Chemical Industries Ltd. vs. CIT (1979) 11 CTR (Guj) 139; (1980) 123 ITR 669 (Guj) and CIT vs. Paul Brothers (1995) 216 ITR 548 (Bom) relied on.”

In the result, appeal filed by the Revenue is allowed for statistical purposes.